Module one covers what a commercial agent is and is not, remuneration, Commercial agents regulation and the impact of Brexit, basic duties, commission, conclusion and termination as covered through regulations 2-16 of the Commercial Agents Regulations 1993.
We now move on to looking at the law of commercial agency in more detail and here, the most important piece of legislation to have regard to and which we will work through is the Commercial Agents Regulations 1993. We’ll refer to these as the Regulations throughout.
So what does this mean? Let’s take a look at some initial case law which has interpreted Regulation 2(1) and provided us with legal precedent in this area.
Another key case is Invicta UK v International Brands Limited where Invicta had been engaged by International Brands to get its wines listed with major retailers and wholesalers.
We now briefly touch upon the implications of Brexit given that the Regulations are EU law and given that at the time of writing, we still find ourselves within the transition period and no clear details as to the type of Brexit that the United Kingdom is set to experience.
We now refer back to the Regulations and having established what a commercial agent is, we will now look in more detail at what or who is not a commercial agent. As mentioned briefly, this does not include a Partner in a Partnership, director or office in the case of a company or LLP or insolvency practitioner in the case of any business.
Regulation 2(1) continued:
Regulation 2(2) of the Regulations also goes further to state that where someone who would otherwise appear to meet the requirements of a commercial agent, they will not be so where they are unpaid for their activities. This does not however, cover where that non-payment is in breach of contract of course.
Regulation 2(3) and (4):
Regulations 2(3) and 2(4) then provide some further examples. That which appears most pertinent here is those who are classified as secondary agents, being those who sell goods as a secondary consequence of the primary purpose of their services.
Crane v Sky In-Home Service Ltd – secondary in nature
A good example of "secondary in nature" was set out in the case of Crane v Sky-In Home Service Limited.
Regulations 3, 4 and 5 of the Regulations, deal with the duties of the agent, the principal and the fact that these duties cannot be derogated from respectively.
Moving on to Regulation 6 of the Regulations, we see the basis on which commission is paid to agents for their activities. This states what the form and amount of the commission should be in the absence of there being a formal agreement entered into by the parties. Regulations 6 states as follows: the remuneration that commercial agents appointed for the goods forming the subject of his agency contract are customarily allowed in the place where he carried on his activities. Furthermore, it states that the agent will be due reasonable remuneration taking into account all the aspects of the transaction.
Regulation 7 then goes on state that the agent is due to receive commission in relation to those transactions which are concluded during the term of the agency contract. This seems relatively easy to understand and particularly where the agent has had some part in making an introduction; however, please be aware that should an agent be appointed under an exclusive territory or customer group and a sale be made within that territory or customer group then even though the agent may have had no part in that sale, they would still be entitled to commission. If therefore, you wish to reserve the right to make direct sales in addition to the agent, then it is important that the agent is only given sole (rather than exclusive) rights.
Whilst the circumstances of Regulation 7 are a bit more straightforward, Regulation 8 provides for additional circumstances in which the agent would be entitled to commission. This provides that he may receive commission where the transaction is concluded after the conclusion of the agency contract. In the case of Warren t/a On-line Cartons and Print v Drukkerij for example, commercial agent Mr Warren decided in September 2009 to retire and provided three months’ notice to terminate his agency. The agency ended in December 2009 on good terms. In the six months following this termination, around £230,000 worth of orders were placed with the principal by two key customers Mr Warren had previously been maintaining. When Mr Warren discovered that he had missed out on a large amount of commission, he brought claims under the Regulations. In his claim for “pipeline commission”, he was awarded £5,771 under Regulation 8.
Software Incubator Ltd v Computer Associates Ltd – specify what this is:
It is possible to contract out of the agent’s right to commission under Regulation 8 as the parties did in the Software Incubator case. The danger of not doing is that where an outgoing agent is replaced, there is a situation where both he and the incoming agent are entitled to commission. In addition to being able to contract out of this right to commission with the outgoing agent, Regulation 9 states that it is possible to apportion commission on a particular sale between an outgoing and an incoming agent, thereby avoid the principal paying this twice.
Commission will become due in accordance with Regulation 10, which provides that commission shall become due as soon as either, the principal has executed the transaction; the principal should, according to the agreement with the third party, have executed the transaction; or the third party has executed the transaction. In terms of payment, the commission is to be paid by the last day of the month following the quarter in which it became due, and, unless otherwise agreed between the parties, the first quarter period runs from the date the agency contract takes effect, and subsequent periods shall run from that date in the third month thereafter or the beginning of the fourth month, whichever is sooner.
However, the right to commission can be extinguished in accordance with Regulation 11, if it is established that the contract between the third party and the principal will not be executed because of a reason for which the principal is not to blame. Any commission which the commercial agent has already received shall be refunded if the right to it is extinguished.
(ERGO Poist’ovna a.s.v Alzbeta Barlikova – don’t just look at legal but factual/circumstantial)
In the case of ERGO Poist’ovna a.s.v Alzbeta Barlikova it was established than when determining whether the right to commission has extinguished, it is necessary to look at the factual and circumstantial facts of a matter and not just the legal position.
ERGO – (Case C 48/16) 17 May 2017: ECJ guidance = the concept of a reason for which the principal is to blame in article 11(1) does not relate only to the legal reasons which led directly to the termination of the contract, but covers all of the legal and factual circumstances for which the principal is to blame, which are the cause of the non-execution of that contract.
We now move on to looking at the circumstances surrounding termination of the agency relationship and Regulations 13 – 16.
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